S&OP Archives

Procter & Gamble Speaks at the 3PL Summit

Consumer Packaged Goods (CPG) | By Steve Banker • 06/23/2014

A week and a half ago I attended and spoke at the North American 3PL Summit and Chief Supply Chain Officer Forum in Chicago.

Procter & Gamble’s Julio Nemeth, SVP of Product Supply, also spoke. He spoke about P&G’s supply chain initiatives. He had some interesting things to say:

They are now using demand sensing data in fairly sophisticated ways, such as the inclusion of customer web search data. However their forecast accuracy at the SKU is still only plus or minus 20 percent. Clearly, this is one reason they need a responsive supply chain.
P&G has rather forgone talking about supply chain systems and instead talks about their investments in analytics. They believe their supply chain systems are too siloed and they are missing global optimization opportunities. They are looking for a “fully interconnected platform” that delivers “holistic optimization.” I did not get the sense Julio was talking about an ERP solution because he wanted a platform and applications capable of learning and getting better on a day by day basis. If they can get to a “real-time instrumented supply chain,” P&G believes the upside is a 1-2% sales increase, 2-5% margin improvement, and 5-10% improvements in asset utilization.
The consumer goods giant has significantly sped up their planning cycles. They use to do S&OP monthly with weekly updates. Now the only part of the S&OP process done monthly is the financial forecast. In their fastest moving categories making demand/supply corrections twice a day!
Supply network design has gone from a focus on where plants should be located, to a look at the whole supply chain system with an increased look at risk management drivers. Clearly in a network design project you want to build where customers are located, but they also look at transportation reliability (including the availability of carriers and drivers) and the location of suppliers. Ten years ago, they were building fewer and bigger facilities. But today logistics costs are higher than manufacturing costs and that is driving them toward building more and smaller facilities. Their plants tend to serve the region they are in. There is very small amount of finished goods shipments between regions.
For risk management, they are using the MIT model which maps raw material and product flows and matches them to the financial flows. Those nodes which would significantly impact the financial flows need detailed contingency plans. A fire at a big plant would be one example.

Other than the keynote, this was the best attended speech that I was present for. Julio says that P&G’s core competencies are understanding consumer behavior and branding, but I would say that Mr. Nemeth is being modest. Supply chain management, even if they don’t call it that anymore, is clearly a core competence.

Baroid Centers Sales & Operations Planning on Transportation

Supply Chain Planning | By Steve Banker • 10/21/2013

Sales & Operations Planning (S&OP) is traditionally defined as a cross functional process designed to balance supply and demand. The main players traditionally involved in this process are demand forecasting, manufacturing, sales and marketing, finance, new product development, and executive management. In most S&OP processes, transportation and warehousing folks do not have a seat at the table, and indeed are lucky if they are even told what the agreed-upon demand and supply plans are.

So when I heard a speech by Jerry Toliver, Global Service Manager at Baroid Industrial Drilling Products (a division of Halliburton) at the Sales & Operations Planning conference in Boston, highlighting how the transportation folks were at the heart of the company’s S&OP process, I was very pleasantly surprised. Baroid is a very large, global distributor of industrial bulk supplies for oil fields. The company purchases goods globally from over 600 suppliers. The goods flow into warehouses where they are treated and their quality is certified, and then they flow out to oil fields all over the world as needed. Because these are bulk products, the goods move by ocean, rail, trucking, and in rush situations, by air. A core part of Baroid’s value proposition is that customers will always have products when they need them, which is why Baroid sometimes uses air transportation. But, of course, this is a very expensive way to ship pallets that on average weigh 2,500 pounds.

This is a supply chain with long lead times. It takes 30 days for goods to ship across an ocean and get to Baroid’s warehouse, up to 10 days to certify the products at the central warehouse, and then up to 40 days to ship the goods to overseas locations. And yet Baroid promises customers 30-day deliveries. Not surprisingly this was a supply chain with a lot of inventory and sales people making just-in-case bulk orders for more inventory than they needed. The supply chain team never knew when those orders would be placed.

When Baroid moved to S&OP, which it calls “level loading,” the company told the sales folks that if they don’t participate in the forecasting process, their orders will not be honored. This was not strictly true, but it caused the sales folks enough grief that was easier for them to just participate in the forecasting process. Sales people do forecasting at the oil rig level.

The supply chain folks from Baroid admitted that their S&OP process is still maturing. They only began their journey to S&OP excellence within the last couple of years. Forecast accuracy, for example, is only 53 percent. Sales orders placed inside lead times, which drives high transportation costs, still occurs 63 percent of the time (it was 83 percent before S&OP).

Despite this, Baroid has achieved tremendous results and recognizes that it should have initiated S&OP long ago. Key supply chain metrics are improving. Inventory turn rates have improved, and indeed there is an increased ability for local stock points to pull inventory from other stock points in the region. Supplier shortages have decreased because the company shares its forecasts with suppliers. The on-time deliveries metric is improving and lead times are going down.

These improvements in supply chain metrics translate into a better bottom line. Cost of goods sold as a percentage of revenue is decreasing; in other words, on an order by order basis, the company is more profitable. And transportation savings are the key reason for that. There are far fewer less-than-container loads going out by ship. With S&OP, Baroid can aggregate orders and do far more full container shipments. And finally, partly because it is a more reliable supplier, the company’s revenues are increasing.

Is the Traditional S&OP Process Outdated and Heading to Extinction?

Logistics Trends | By Adrian Gonzalez • 08/07/2013

Last week on Talking Logistics, I had a very thought-provoking conversation with Tony Martins, VP of Strategic Services at Halo Pharmaceutical. Tony is a unique supply chain executive — he not only sees the potential value of social networking in transforming supply chain processes, he’s also a thought leader and visionary in this area, publishing his ideas and models on his blog, Cyber Supply Chain.

Tony speaks from experience. In his previous role as VP of Supply Chain at TEVA Canada (a subsidiary of TEVA Pharmaceuticals), he deployed a social networking solution that greatly facilitated the way employees across various departments and geographies communicated and collaborated with each other to resolve problems and exceptions quickly (see “Want a Fast-Response Supply Chain? Facilitate People-to-People Communication”).

Since then, Tony has continued to expand his thinking on how supply chain processes and workplace structures need to change in response to today’s highly dynamic business environment (a topic Jordan Kass from C.H. Robinson also discussed in a recent Talking Logistics episode, “Why Supply Chain Innovation Matters in a Fast-Changing World”). For example, a concept Tony’s written about is managing in NOW mode, which he defines simply as “If it’s happening now, you deal with it now.” In our conversation last week, Tony contrasted working in NOW mode with the “traditional, cyclical, monthly” S&OP process, which he thinks “is condemned to disappear in the next 5 to 10 years, maybe sooner.”

Watch the short clip below to learn why Tony believes the traditional S&OP process is heading to extinction, and why he believes managing supply chains in NOW mode can only be done using social networking.

Here’s a short excerpt from his comments:

The problem [with the traditional S&OP process] is that it takes three weeks, usually, to deal with something that already happened last month. And you’re doing demand planning with data that is old. By the time you get to the third week of the month, demand has already changed. The world doesn’t stop moving while everybody is having these meetings and producing these [graphs and reports]. The data you see on the graph on the third week of the month is already obsolete. I remember many times going to these sessions with the standard graphs and then having to bring additional graphs to bring everybody up to date on what happened the past few weeks. [This process] doesn’t make any sense, not for the world that goes very fast.

So, do you agree with Tony, is the traditional S&OP process outdated and heading to extinction? More broadly speaking, do companies need to rethink and transform business processes and workplace structures that were designed for more static (less dynamic) business environments? Is greater use of social networking and virtual workplaces part of the solution? Post a comment below and share your viewpoint! Also, watch the rest of last week’s episode to answer this important question: Are you working in a Company of Yesterday or a Company of Tomorrow?

Also, if you are attending the Council of Supply Chain Management Professionals (CSCMP) Annual Global Conference in October, don’t miss the opportunity to engage with Tony Martins in person. He will be participating, along with Craig Dickman (CEO at Breakthrough Fuel) and Bruce Welty (CEO at Quiet Logistics), in the mega session I am moderating Wednesday morning, October 23 on “Mega Trends Impacting the Supply Chain.” I hope to see you there!

Vignettes from JDA FOCUS 2013

Logistics Software Vendors | By Steve Banker • 05/13/2013

Last week, I attended JDA’s user conference, JDA FOCUS 2013. There were more than 2,600 attendees there — a bigger event than last year because of the JDA/RedPrairie acquisition. One of the things I value about this conference is not only the opportunity to listen to smart customers talk, but also having conversations with some of JDA’s sharp executives who test my thinking.

Here were some interesting tidbits:

A top executive from Walmart gave a keynote presentation the first day. Walmart is famous for building RetailLink and providing manufacturers with point-of-sale (POS) and other forms of downstream data. This executive said this was no longer good enough. Walmart needs to work toward providing its manufacturing partners order forecasts that go out 30, 60, and 90 days. There is a great opportunity, which he called “the great unlock,” to do much better joint promotion planning if they can do this.
In the past, we’ve written about the need to include the transportation team in the Sales & Operations Planning (S&OP) process. That is starting to occur. A large equipment manufacturer talked about how it is using JDA Transportation Modeler to support this process. One goal of a S&OP process is to help a company forecast how it will do in relation to its financial targets. If the S&OP process is showing that order volume will go up 20 percent over the next three months, for example, it would be foolish to assume transportation costs will also go up 20 percent. Those costs might actually go up much more — or much less — than 20 percent depending on the network and transportation capacity.
A large retailer that had never done demand planning is now carrying 20 percent less inventory in its distribution centers (DCs). The factoid that caught my attention was that it costs the retailer 5 to 6 cents per case per day to hold inventory in its DC. Assuming the retailer stores tens of thousands of cases per DC on any given day, my back of the envelope math shows the retailer is saving tens of millions of dollars per year from implementing demand management. Yet the retailer admits it is still fairly immature in this area; there are more savings to be had as it gets better at this.

In the “test my thinking” category, I’ve changed my mind in two areas:

I told JDA’s CTO that I knew software vendors had to invest in mobility, but it did not excite me. So, you can show an application screen on an iPhone or tablet computer — big deal. The CTO pointed out that the real opportunity from investing in mobility is based on creating more efficient workflows and business processes. Their first big area of investment is using mobility to make store operations more efficient. In an omni-channel world, where goods might be ordered online but delivered from the local store, some of those workflows may have a supply chain flavor.
I’d always presumed that e-fulfillment is best done from a dedicated dot-com warehouse. JDA is signing WMS deals where both e-fulfillment and store replenishment are done in the same warehouse. My longtime WMS product manager/marketing buddy tells me they have 11 retail customers doing store replenishment and dot-com out of the same warehouse. His point is that segregating the case-pick part of a warehouse (store fulfillment) from the each-pick portion (dot-com fulfillment) is not that hard. It is also probably much less expensive to expand an existing DC than build a dedicated greenfield dot-com warehouse.

Finally, one of the things I appreciate about the JDA conference, in contrast to other supply chain events I attend, is that many of the speakers are from operations instead of IT; operations/business folks are much better speakers.

Leading Supply Chain Software Vendors Differentiate Their Offerings with Analytics

Business Intelligence | By Steve Banker • 03/18/2013

Earlier this month I attended the SAPinsider meeting in Las Vegas. SAP was actively promoting its HANA solutions, which uses in-process memory primarily for providing real-time analytics. HANA is particularly well suited to analyzing extremely large amounts of data very quickly. SAP says that HANA can analyze data hundreds of times faster than traditional approaches to business intelligence.

The keynote address was given by Steve Lucus, the EVP and General Manager for SAP Database and Technologies. Steve gave the following example of how companies can use HANA in a supply chain risk management scenario. He asked us to imagine an automotive manufacturer with many large and small suppliers. Then imagine that the automaker has one key supplier of a critical part, such as a fuel injection system. What if a natural disaster occurs and that supplier’s primary factory is knocked out? For the automaker, quick analysis become critical. Many questions need to be answered quickly. How many fuel injection parts are on hand? Who else could they buy from? How long would it take to get those parts? What are the cost implications of sourcing from new suppliers when fully considering tariff, tax, and shipping costs? Using traditional systems, it could take weeks to fully answer these questions. Business suites leveraging HANA can greatly speed this kind of analysis.

SAP now offers HANA solution for Sales and Operations Planning and Demand Signal Management. SAP also announced the acquisition of SmartOps, which has been developing a short term forecasting engine based on the use of downstream data. The SmartOps solution, when used with the Demand Signal Management solution, becomes very synergistic.

Finally, SAP has introduced a Predictive Analytics solution based upon HANA. This solution can be used in several functional areas including supply chain management. It could, for example, be used to make out of stock predictions based upon demand spikes, changing lead times, or other events.

But SAP is not the only software vendor seeking to differentiate its offerings based on analytic capabilities. Infor and JDA Software are also worth mentioning.

Infor has blended together its user interface, SCOR metrics, in-line analytics, and opt-in social communities in a very appealing manner. The offering is very difficult to explain, but its excellence is immediately apparent when you see it demonstrated. Infor’s goal is to provide a greatly enhanced user experience. Interestingly, while business intelligence development is a component of the enhanced user experience, the usability is based upon Infor’s ION solution, which is primarily a middleware solution.

Meanwhile, JDA has built “Process Playbooks” that help to close the gap between planning and execution processes. Perhaps the most important process in SCM is sales & operations planning (S&OP). While plans are great, they have limited value if there are not feedback loops that tell executives when events are diverging from a plan and what changes must be made.

The S&OP process is built around building a monthly plan. The appropriate feedback loop would be detecting plan divergence during the month, having an escalation process in place to alert key executives, creating new plans quickly, and, finally, executing those plans mid-month.

The JDA S&OP dashboard has a deviation dashboard that includes the number of deviations by category — for example, financial plan deviations, over or underutilized resources, etc. The dashboard also categorizes deviations as being high, medium, or low in severity. Then in true dashboard fashion, a user can drill into a deviation, such as a financial shortfall, and see which items or customers are causing the shortfall.

But this is where JDA’s solution gets interesting. JDA allows planners to add a root cause reason code with preset reason tabs (e.g., “market below plan”) for why a particular item is below plan. There is also a comment section where planners can select predefined comments such as “Needs immediate attention.”

The solution also has resolution levers for this particular type of deviation! In this case, the levers are “reduce price” or “run promotion.” The solution then has the ability to escalate the problem to teams or executives for sign off; the ability to examine the new plan before executing it; the ability to push a button and update the plan; and, finally, the ability to communicate action items to the affected individuals.

In short, supply chain software vendors are doing interesting things with analytics, and they are using analytics to differentiate their solutions in the market. Because of space limitations, I’ve elected to briefly write about three vendors that I believe are doing particularly interesting work in the analytics area.

(Note: JDA Software and SAP are Logistics Viewpoints sponsors)

Guest Commentary: Supply Chain Innovation: The Road to a Real-time Supply Chain is Now Wide Open

Guest Commentary | By Andres Botero • 03/05/2013

A new Bloomberg BusinessWeek Research Services survey and report makes it clear that innovative supply chain tools are widely acknowledged to be crucial to meeting corporate goals now and in the future as supply chains grow more complex, customers become more demanding and globalization accelerates. In this context, supply chain innovation is becoming more important as companies that have invested in traditional tools are now determined to operate real-time supply chains.

Although more than three-quarters of survey respondents noted that demand and supply forecasting and planning tools are already very important, and a majority already has these tools in place, adopting newer supply chain tools that support the creation of real-time supply chains is recognized as highly important.

A real-time supply chain can sense and detect new challenges as they happen. That enables supply chain planners and practitioners to make real-time decisions based on the most up-to-date information. Companies taking this approach view the supply chain as a strategic initiative. They use their understanding of the market and fluctuating demand patterns to adjust their supply plans in real time.

In fact, the Bloomberg Businessweek Research Services survey found that the tools required for real-time supply chain management are on a fast track to adoption within the next two years. Among the real time supply chain focus areas highlighted are multi-level inventory optimization, demand signal repository, sales and operations planning, and leveraging point of sales (POS) data across the supply network.

5 Steps to a Real-Time Supply Chain
Perhaps the most critical step is enabling insightful supply chain management. Supply chain business decisions need to be made in a business context, not in a silo. Companies leveraging the wealth of performance data about their supply chains can enable that real-time analysis, gain insight into fragmented business processes and achieve deeper visibility through alerts based on key performance indicators (KPIs). The result is a transition from management by exception to management by information — a “supply chain GPS,” if you will.

The second step is transitioning from traditional S&OP to sales and operations business planning. Companies cannot afford to disconnect their sales and operations business planning from tactical planning. Business priorities and operational decisions must be balanced against a clear understanding of their financial impact. Using solutions that combine operations and financial data, the business can collaboratively create scenarios and simulate the effects of decisions in real time to increase supply chain profitability.

Another key driver is embracing the concept of a demand-driven supply chain. The most prevalent supply chain challenge is lack of clarity into what customers want and when they want it. In a demand-driven model, companies use POS, social media and market research data to sense customer demand signals immediately and to respond in real time to build that demand into the planning processes. This accelerates supply chain processes and reduces planning cycle times, working capital (inventory) and lead times. It also provides the opportunity to increase revenue by avoiding stock outs, increasing promotion effectiveness and optimizing new product launches.

With complex global networks, ensuring efficient execution in the areas of logistics and order fulfillment is more critical than ever. With increased supply chain complexity, it becomes more difficult to deliver the perfect order. At the same time, transportation costs are rising across more complicated supply chains. Optimizing execution requires real-time visibility into shipping processes and track-and-trace capabilities, along with automated warehouse and distribution processes and advanced transportation planning.

To close the real-time loop, companies must focus on streamlining the service supply chain. Successfully running an integrated supply chain for service parts businesses requires real-time visibility into customers, suppliers and operations. This enables companies to respond swiftly to customer requirements, procure parts earlier, plan parts inventory more effectively and unlock service parts profit potential.

Technology Enablers
To transition to a real-time supply chain, these five areas need to be tightly integrated and coordinated. Besides advanced solutions, companies need advanced analytics that can support real-time decision making. Recent advancements in the area of in-memory computing are already allowing companies to respond quickly to market dynamics with real-time visibility into customer demand. Mobile solutions, with their user-friendly interfaces, can deliver real-time optimization to all stages of the supply chain.

The road to a real-time supply chain is getting shorter, and those who have arrived say it is well worth the journey. Those not there yet need to engage partners who will enable them to adopt and integrate these technologies in a non-disruptive way, through side-by-side deployment options and turn-key deployment projects.

Andres Botero is the Global Lead, Supply Chain Management (SCM) Marketing at SAP. He is responsible for strategy, positioning and overall marketing for all SAP SCM solutions. Previously, he led marketing for Supply Chain Execution and coordinated SAP’s global strategy, commercial execution, and marketing efforts around Auto-id technologies. Previously he held positions with Siebel Systems, StepNexus, Arthur D. Little, Mobil Oil, and Procter & Gamble. He has 14 years of experience in enterprise software, including CRM, SCM and Business Intelligence/Analytics. Mr. Botero holds a BS in Industrial Engineering from Universidad De Los Andes and a MBA from Stanford University.

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